Edison Plans to Replace Pipeline Gas with Flexible LNG Supply

Edison aims to replace some pipeline gas with flexible LNG supply to gain more flexibility in managing demand. The company plans to reduce volumes from pipeline contracts with Algeria and Libya, replacing them with more LNG from a 15-year agreement with Shell and a previous contract with Venture Global LNG. Edison seeks to adapt to uncertain consumption trends in Italy and Europe, and be able to resell cargoes to other markets when demand is low.

Italian gas and electric utility Edison (EDNR) is adopting a new strategy to enhance its flexibility in managing demand by replacing some pipeline gas volumes with liquefied natural gas (LNG). The company has signed a 15-year agreement with Shell (SHEL) to purchase approximately 0.7 million tonnes of U.S. LNG annually, starting in 2028 Edison aims to replace some pipeline gas with flexible LNG supply^[1].

Edison's CEO, Nicola Monti, announced this shift at the Gastech conference in Milan, stating that the company aims to reduce the overall volumes from its two expiring pipeline contracts with Algeria and Libya. These contracts, which supply around 1 billion cubic metres and 4.4 billion cubic metres per year, respectively, will be partially replaced by LNG from Shell and a previous contract with Venture Global LNG (VG) Edison aims to replace some pipeline gas with flexible LNG supply^[1].

This move is part of Edison's broader strategy to adapt to uncertain consumption trends in Italy and Europe. By increasing its LNG supply, Edison can resell cargoes to other markets when demand is low, thereby improving its operational flexibility. The agreement with Shell follows a long-term gas contract signed with Venture Global LNG, which has been delivering gas since April 2022 Edison aims to replace some pipeline gas with flexible LNG supply^[1].

Edison is also pursuing an arbitration case against Venture Global for allegedly failing to start LNG shipments in late 2022, when Europe was grappling with Russia's invasion of Ukraine. Monti expects the case to be decided by year-end Edison aims to replace some pipeline gas with flexible LNG supply^[1].

Other companies, including BP (BP) and Galp (GALP), have filed similar claims against Venture Global, accusing it of profiting from the sale of LNG on the spot market instead of providing contracted cargoes Edison aims to replace some pipeline gas with flexible LNG supply^[1].

Edison's decision to diversify its gas supply is part of its broader industrial strategy to enhance Italy's energy security and long-term competitiveness. The company currently imports about 14 billion cubic metres of natural gas per year, with import contracts with Qatar, Libya, Algeria, Azerbaijan, and the United States, meeting 23% of domestic demand Italy’s Edison to Buy U.S. LNG Under 15-Year Deal with Shell^[2].

By expanding its LNG portfolio, Edison is contributing to the EU's efforts to buy more LNG from the United States, as per the trade deal. This move is expected to further diversify Italy's gas supply and strengthen its energy security.